You may think a company car offers great benefits for both the business and the employee, but have you considered all of the tax implications?
Any car owned by a company, which is used by an employee for personal use, will attract a benefit in kind charge based on the CO2 rating and the list price of the car.
In 2017/18, an average diesel saloon car with a list price of £35,000 and CO2 of 116g/km has a CO2 percentage of 25 per cent. The employee would have taxable income therefore of: £35,000 x 25 per cent = £8,750 which would be charged depending on the income tax band they are in.
For a full benefit in kind table, see below.
If the company pays for private fuel, there will also be a fuel benefit in kind charge. This is based on the same CO2 percentage as the main car benefit in kind. So based on the earlier example, this would be:
£22,600 x 25 per cent = £5,650, again chargeable to income tax
Currently, the benefit in kind rules for electric cars are more favourable as the CO2 percentages are low, however this is changing as of 2018/19. Although the percentage will still be lower, they will be much closer to today’s saloon cars.
Additionally, employers pay Class 1A National Insurance Contributions (NIC) on work benefits given to employees, such as company cars. This is payable at 13.8 per cent on the combined car and benefit in kind value and is reportable on Form P11D (b) every July.
An alternative to a company car is owning the car personally and charging the business for your business mileage. Mileage rates can be charged at 45p per mile for the first 10,000 miles and 25p thereafter, without any tax charge. This is usually much cheaper than having a car in the company name, unless it is a commercial vehicle.
For the same saloon car as above or any car, the rates charged for mileage would be:
|Miles travelled||Mileage rates
45p per mile for the first 10,000 miles and 25p thereafter
There are other vehicle options to consider, any vehicle that has a payload of over one tonne can be classified as a commercial vehicle. The benefit in kind charge for a commercial vehicle is fixed at £3,230 for the car benefit and £610 for the fuel benefit; a lot lower than our average saloon.
Differentiating between a commercial vehicle and a car is usually quite obvious, but nearly all pickup trucks also qualify. Previously, pickup trucks were quite rugged and may not have been used as cars, however, they can now be luxurious and should be considered as cheaper alternative to a car.
Rather than the employees tax position, we should also consider the company’s tax position. If the company owns a car, it can claim Capital Allowances against its value to reduce Corporation Tax (or it can offset lease payments if the car isn’t owned). The company can also claim the VAT back on its costs, making it a cheap way to remunerate employees.
It is important to remember that any leased car that has a CO2 rating of over 130g/km will have a 15 per cent disallowance for Corporation Tax.
A company car sounds like a great option, however, can be costly for the employee. There are plenty of choices to consider so you can get the best fit for you and your company.
Expert advisors from Champion Accountants can provide help and advice, to see which option would be best for your business, contact your local Champion office today.
Table taken from company car tax rules: 2005 to 2019, gov.uk
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